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While welfare cheats fill our jails, the people accused of engineering much more serious kinds of fraud will almost certainly go free

A lot of interesting things happening on the white-collar enforcement front. Evil hedge fund SAC Capital and its villainous ruler Stevie Cohen were run through the gauntlet, Goldman Sachs patsy Fabulous Fab took a beating in civil court (I love the detail that emerged, that Goldman executives now call him "the poor kid"), and now, apparently, a pair of high-profile investigations have been launched against Bank of America and J.P. Morgan Chase for subprime mortgage fraud. The latter investigations seem to be designed to answer criticisms that nobody is going after the real doers of evil systemic crimes.

The Chase case apparently involves a criminal investigation, which is indeed interesting. The company admitted as much yesterday, saying federal investigators out West have "preliminarily concluded" that Chase brazenly violated securities laws when it sold subprime mortgage-backed instruments in 2005-2007.

But I'm skeptical it will turn into a real criminal investigation. All of the stories that broke in the last day or two noted the same detail, that Chase has beefed up its estimates for litigation/settlement costs:

As the investigations drag on, the bank is racking up significant legal costs. To help cushion against potentially hefty payouts to the authorities, JPMorgan recorded a $678 million expense for additional litigation reserves in the second quarter, up from $323 million in the same period a year ago, according to the filing on Wednesday.

The bank also estimated it could incur up to $6.8 billion in losses beyond its reserves, nearly $1 billion more than the first quarter of the year.

The government may very well decide to go after Chase in what it considers a big way. It may do the same for Bank of America, and then it may keep going on down the line to other banks, until it has collected a billion dollars or so from all the usual suspects, who were virtually all engaged in the same kinds of schemes, gathering and selling to customers radioactive mortgage bonds they knew were likely to explode, or were ridden with fraud and faulty underwriting.

But to me, these investigations will be meaningless unless one of two things happens, once they reach the inevitable stage of concluding painstakingly-crafted settlements with the inevitable teams of high-priced lawyers for the offending firms:

1) Someone goes to jail.

2) The company is ordered to break itself up into smaller pieces.

As to point one, here's the thing. If criminal laws were violated, then the government certainly has discretion to exercise mercy and seek non-criminal sanctions against the individuals responsible. But they can really only do that and not be total hypocrites if they also simultaneously implement leniency programs for ordinary street criminals at the same time.

Just yesterday, for instance, a federal judge in Mississippi handed down a six-month sentence to a man and ordered him to pay $8,282 in restitution for food stamp fraud – one Stanley Jones apparently lied in an application about whether or not anyone in his household had ever been convicted of a felony drug charge when he applied for food stamps.

Stanley Jones is going to do six months in jail for fraud in a case brought by the same Justice Department now sniffing around Chase and Bank of America. I would be shocked if $8,282 didn't represent the entire amount of value "taken" via Jones's fraud. I spent a lot of time with people targeted for welfare fraud for my upcoming book, The Divide, and the state never settles for anything less than every last dollar in these cases. Incidentally, you can find cases like this pretty much every day in every state in the country. Guaranteed, someone somewhere in America right now is drawing jail time for some form of welfare fraud.

Meanwhile, S.E.C. target Fab Tourre – the Goldman exec who joked about selling bad bonds to "widows and orphans" – will not do a day in jail for his part in a fraud that caused two banks in Europe to lose over a billion dollars. And Fab's restitution will range from $30,000 to $780,000, depending upon how much judge Katherine Forrest decides to ding him for each of his six counts of civil fraud. (It will be very interesting to see where she lands on that decision). Fab's bank, Goldman, Sachs, has already settled for $550 million for the same case, which is a lot of money, but again less than the total amount of the damage. And nobody went to jail.

This isn't about throwing bankers in jail for the sake of it. It's about making things fair. If we're going to keep throwing people in jail for food stamp fraud, then bankers who commit systematic securities fraud also have to go to jail. Either that, or we have to come up with alternative punishments for both types of nonviolent criminal. I'm not opposed to that, either. There are powerful arguments to be made against jail for many nonviolent offenders. The punishments for rich and poor just have to match, that's all.

As to point two – if we're not putting people in jail, we at least have to insist the companies break themselves up – this is in response to the argument made by the likes of Attorney General Eric Holder and former Department of Justice criminal division chief Lanny Breuer last winter after settlements involving HSBC (for money laundering) and UBS (for mass rate-fixing in the LIBOR scandal). The justification in those cases for deferred and or non-prosecution agreements coupled with huge fines as punishments for sweepingly destructive offenses was that the companies in question were too large and too systemically important to risk indicting criminally.

Well, let's say that's true. It's an argument not completely without merit. Nobody wants to see a repeat of the Arthur Andersen case, when the federal government indicted on a single count, the company went under, and 28,000 jobs were lost.

But if that's true, then the state can't simply accept that reality every time a huge company starts committing serial fraud or theft. If these companies commit crimes but are too big to prosecute, well, then, in lieu of indictments of the firm, or jail terms for executives, they have to become smaller, so that they can safely be prosecuted the next time. The state has the power to make that happen, but it would be a shock if they ever exercised that power.

That won't happen, however. Almost guaranteed, these investigations will end with huge cash settlements. We'll keep the jails filled with food-stamp thieves, while the bank execs who knowingly hawked doomed mortgage bonds to "widows and orphans" all over the world will almost certainly get off. At worst, their shareholders will cough up another billion or two in settlement money.

All of this is stuff that has to be kept in mind when news of such investigations leaks. It may sound like tough action. But it could just as easily be more of the same cost-of-doing-business, for-appearances-only non-regulation of the looking-busy genus. Wake me up when someone goes to jail.